I Just Don’t Have Time – Michael Dennis, CBF

At a recent industry credit group meeting, the morning guest speaker talked about the need for periodic financial statement updates from customers. One of his strongest recommendations involved updating statements no less frequently than once a year…an idea I agree with completely.

Over lunch, several of the credit managers at my table basically scoffed at the idea of annual updates. One common concern or complaint involved not enough time or resources. One especially vocal credit manager said: “If I actually had to update financial statements once a year, it would take nothing less than 40% of my time.”

In my opinion, annual customer financial statement analysis is a critical success factor for any credit department. I am not convinced that credit managers can effectively manage credit risk without period financial updates and analysis… even if

Michael Dennis, MBA, CBF, LCM

doing so does take 40% of the manager’s time. Of course, this work is routine and can and probably should be delegated to an employee of the credit and collection team as quickly as possible.

The opinions presented are those of the author. The opinions and recommendations do not necessarily reflect the views of CMA, or their Officers and Directors. Readers are encouraged to evaluate any suggestions or recommendations made, and accept and adopt only those concepts that make sense to them.

7 Replies to “I Just Don’t Have Time – Michael Dennis, CBF”

I am one of those credit assistants and I totally agree with the managers about the tremendous amount of time it takes to analyze and obtain customer financial statements. Obtaining statements from customers is like pulling wisdom teeth. Many customers simply refuse to provide them and when they do they are not even independently audited; they are done by the customers bookkeeper. Many places are running skeleton crews in accounting and credit either by choice or because of the economy so not having the time is the reality at this point . We try to mitigate our risk here by using a scoring system our credit manager developed, credit reporting companies , trade & bank references and enlisting the salesmen to help provide additional background information.Its not perfect but you do what you gotta do.

I totally agree with you, Michael. I have a very limited staff but we still put out the effort to get annual financial statements. So much can change in a year that you will not see on credit scoring. You can see trends in Cash Flow that should concern every Credit Manager. If a company is not making its money from Operations, then you could have a possible business failure, that wouldn’t be found out as payments continued to be made timely from borrowing not healthy profits.
We feel strongly enough about getting FS that we have added a CRM add-on to Outlook to track Financials in house and to create a letter/mail merge to send out requests. It does take time and effort but it also lets me know if i have a customer at risk in addition to a possible busines risk of having a market at risk.

Michael – I agree with your position to a point. If we tried to obtain & analyze financials on all of our customers, time would indeed be a problem. In our company’s credit policy, we have divided our customers into credit limit segments for the level of analysis & how often it is to be done. Less than $50,000 is updated as-needed, $50,000 to $250,000 is updated every 2 years & may include financials, and over $250,000 is updated annually with financials. The update includes bank & trade info, trade group reports, commercial credit reports as well as financial statement analysis. And the great thing about being in an NACM credit group (highly recommended- we are in 2) is that we get a large amount of credit data quarterly via account submissions and meeting reviews. For most credit managers account analysis is an on-going process, and not limited to credit policy guidelines.

I do not agree. My ‘staff’ is Me, Myself, and I. We also do not have time (or management support) for credit group meetings. To review public company customers we use Credit Risk Monitor’s scoring to produce a Top Customer report. That tends to cover the subject while spending a minimum amout of time on the subject.

The title of your topic is one of two phrases that absolutely make me cringe when I hear them; “I don’t have time”, “that’s not my job”. In my opinion these are two phrases that an employer never wants to hear. As credit managers, we owe it to our current and future employers to find solutions that give them the best risk assessment of our customers. In my industry, 98% of our customers simply will not provide financial statements. But for those that will and the few public companies that are available, it is an exercise that we will do to provide the most complete picture of a company.

Great article.
I have been in companies that require financials which has limited sales and I have been in companies that require contracts but not credit apps which has created sales.
Every company and their customer base are different along with every companies objective but in the end the bottom line is always the same which is a profitable/collectable sale!
Financials are great if available as any credit tool goes in reducing the risk at hand!
Thanks